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EXECUTIVE UPDATE

Canada's Electrification Pathway?

Published on: November 07, 2019

As Canada is deciding how to manage its carbon emissions, policymakers are considering ‘electrification provided by renewable energy sources’ as a pathway. Currently, Canada’s grid is over 80% non-emitting, and this percentage will increase as current policies are enacted. However, expanding our electricity systems to substitute existing fossil fuels with renewables creates several questions as to how the substitution might impact our economy.

CERI has researched one main question: the cost of expanding the electricity grid.

The cost to replace natural gas for heating (commercial and residential) and gasoline for passenger transportation is approximately $120/tonne CO2 eq. Network expansion options vary by province and can be anywhere from a 50% increase in the grid to a 150% increase.

Does electrification mean an end to oil and gas activities in Canada? Are we ready to approve new generation facilities, transmission lines, expanded distribution systems and investments in electricity infrastructures throughout the country to meet increasing electricity demands?

While we would see an increase in investment in the electricity sector, we must remember that oil and gas serve domestic and export markets. Electricity, except for some noteworthy efforts by BC Hydro, Manitoba Hydro and Hydro Quebec, is mostly for domestic consumption. What would be the cost of the loss of those oil and gas exports to our economy, the Canadian dollar, and our trade balance?

Oil and gas also contribute unique revenues to governments in the form of royalties in the supply sector and gasoline taxes at retail service stations. Have we thought about how we will replace these tax receipt gaps?

Moving to electricity will see a significant devaluation of the retail infrastructure for gasoline and natural gas. Will those companies be compensated for their stranded costs? How much are those stranded costs?

Do we need a plan for helping the labour market transition from oil and gas activities to electricity? Remember, oil and gas supply activities are concentrated in a few provinces, whereas electricity supply activities will be much more widespread. In a country noted for the lack of mobility of its labour force, what would we need to do to ensure a smooth and low-cost transition?

Are we taking on more risk as a country where many more of our important services rely on the electricity grid’s reliability? How do we quantify that risk? What do we do in an emergency if we can’t depend on our grid for heat AND mobility?

If we are working to manage our emissions, should we also try to sustain Canada’s economic health, which in part is sustained by Canada’s oil and gas sector?

When we go to the grocery store, don’t we often consider the price of our food choices? Yes, we do! Therefore, to achieve our emissions targets should we not consider all costs associated with these new choices.

At present, we don’t have a good understanding of the full cost to the economy of electrification provided by renewable electricity sources instead of fossil fuels to reach carbon emission targets. However, we are starting to see a new benchmark appear for carbon capture from the atmosphere: plants that could be located anywhere in Canada and be an addition to local economic development. These costs are currently in the $100 - $230/tonne CO2 eq. As this technology matures, might we not see these costs decrease and decrease further if markets for carbon utilization products are developed?

These are just some of the concerns and questions we need to consider. There is an international agreement that carbon emissions must be actively managed and reduced. For electrification, the costs range from $120/tonne CO2 eq. PLUS the cost of impacts on our economy of those unanswered questions. That means these costs would likely be higher, how much I don’t know. It could be $50/tonne or $500/tonne. Who knows? Shouldn’t we know before committing to a particular pathway?

With carbon capture from the atmosphere, the higher cost of $230/tonne CO2 eq. is likely to decrease. Which pathway is more expensive? As a country what is our economic benchmark for determining the right path to manage our emissions?

It is important to consider all the costs associated with the electrification pathway. CERI’s analysis has only costed the need for an expansion of the electricity grid. What about the added costs of these unanswered questions?